The Naked ECB

The European Central Bank has begun to buy government bonds, including those of Greece, at prices well above those that would prevail in a free market. But the decision to do so was not unanimous, and has exposed issues concerning the ECB's governance that Europe’s decision-makers have wanted to keep under the carpet.

LONDON – The crisis in the eurozone remains far from resolution. Investor worries are now concentrated on the health of European banks, many of which have large exposures to Greece and the other southern European countries with severe fiscal problems.

Europe’s leaders have so far applied only plaster to the wounds. A stabilization fund has been established, but on a temporary basis. New arrangements for monitoring member states’ budget balances have been introduced, but they can do nothing about the stock of debt outstanding. And the European Central Bank has begun to buy government bonds, including those of Greece, at prices well above those that would prevail in a free market.

The latter move by the ECB has underscored a number of unresolved questions about the structure of the Bank and how it makes its decisions. Some issues that Europe’s decision-makers have wanted to keep under the carpet have now been rudely exposed.

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